Document: In re BJ’s Wholesale Club, Inc. Shareholders Litig., C.A. No. 6623-VCN (Del. Ch. Jan. 31, 2013)
The Delaware Court of Chancery dismissed plaintiffs’ claim that the members of the board of directors of BJ’s Wholesale Club, Inc. (“BJ’s”) breached their fiduciary duties in connection with the sale of BJ’s to a consortium of private equity funds led by Leonard Green & Partners, L.P. (“LGP”). The plaintiffs’ complaint focused on the board’s alleged disparate treatment of strategic and private equity bidders.
In July 2010, BJ’s board began to explore strategic alternatives after LGP signaled its interest in a private buyout of the company by disclosing its nearly 10% position in BJ’s common stock. From July 2010 until February 2011, BJ’s negotiated exclusively with LGP. In February 2011, BJ’s made its search for strategic alternatives public and Party A, a strategic competitor, expressed an interest in acquiring BJ’s at a price higher than the price then-offered by LGP and its two partners (the “Buyout Group”). However, BJ’s repeatedly rebuffed Party A’s interest and signed a definitive agreement with the Buyout Group in June 2011, because: (1) Party A had no history of acquiring domestic corporations, (2) BJ’s was wary of sharing non-public information with a direct competitor, and (3) a merger with a direct competitor posed anti-trust issues.
In this action, plaintiffs alleged that BJ’s treatment of Party A, inter alia, supported a Revlon claim. Because a majority of the members of BJ’s board were disinterested/independent and BJ’s certificate of incorporation contained an exculpatory provision for breaches of the fiduciary duty of care, plaintiffs’ claims could only survive a motion to dismiss if the board acted in bad faith. According to the Court, a Revlon claim premised on bad faith, requires an inference that the defendants “utterly failed” to attempt to obtain the best sales price. Here, the Court found that there were plausible explanations for the disparate treatment that supported the board’s decision on grounds other than bad faith—i.e., that Party A was a competitor etc. The Court also rejected as evidence of bad faith, the fact that BJ’s apparently distributed a proxy statement to its stockholders which stated that no strategic buyer showed any interest in acquiring BJ’s.